Want to buy the dip? 5 stocks at tasty prices

Investors salivating for a market selloff before jumping into stocks are getting their shopping lists ready.

With the Nasdaq composite down more that 6% from its high this year, investors are eyeing the stocks they wanted to buy before but thought they’d wait until the market’s breathless run higher took a break. Even the broad market is hitting a wall, with the Standard & Poor’s 500 down 1.4% from its high this year.

Investors wonder if soon might be the time to scoop up stocks that are already attractively priced, even if the market gets rougher. And that’s why New Constructs, the same market research firm that presciently warned USA TODAY readers about the five most dangerous stocks, is seeing opportunity in five much less aggressive stocks. The firm is worth listening to, not just because it’s been right before, but because it deeply analyzes companies’ financial statements in a fashion not unlike the way Warren Buffett does.

New Constructs examines the company’s profit excluding the influence of debt and one-time charges, measured as net operating profit after taxes, and forecasts what that might look like in the future. Not all these stocks are down this year. But New Constructs’ approach allows it to measure which stocks it says aren’t fully appreciated by the market, like:

* Johnson & Johnson. Management has had several high-profile missteps and the company has been hit with unusual costs. And the stock isn’t exactly getting hurt in the market’s recent turbelence, as it’s up 8.1% on the year. But don’t let these negatives scare you away from a great value, says New Constructs. And investors are still feeling sore about the 27% drop in net income in fiscal 2012. But much of that’s accounting noise, and if you adjust for that, the company’s net operating profit after tax has grown 10% a year on average over the past 15 years, New Constructs says. Discounting the value of future cash flow to the present gives this company a value of $145, New Constructs says.

Johnson & Johnson year to date. Chart source: MSN Money

* Amdocs. This company provides all sorts of software and services to telecom and media companies. While the company sports a seemingly rich price-to-earnings ratio on trailing earnings of 18 times, New Constructs says investors are paying just 1.1 times the company’s economic book value, which is an adjusted measure of its net operating profit after taxes. This valuation means investors think the company’s net operating profit after taxes will never reach more than 10% above its current level, which New Constructs thinks is too low.

* Chubb. This property and casualty insurer is far from what most investors view as exciting. But it’s the lack of excitement that’s making it an interesting possible investment, New Constructs says. At the current valuation, investors are assuming the company’s net operating profit after taxes will fall 30% a year. Talk about an easy target to beat, especially considering the company posted 52% higher net income last fiscal year.

* Ford. This U.S. automaker could be a big winner from the mounting questions facing archrival, General Motors, New Constructs says. Confusing accounting charges, including a $186 million loss due to foreign current exchange rates, that fooled less acute students of financial statements to underestimate the company’s profit power, New Constructs says. Even if the company can boost its net operating profit after taxes by just 6%, a fraction of the growth last year, the stock is worth $27 a share, says New Constructs.

Ford shares this year. Chart source: MSN Money

* AutoZone. The autoparts retailer is a profit machine. The company has boosted its net income in each of least the last five years, jumping from $657 million in fiscal 2009 to more than $1 billion in fiscal 2013. The company is also expanding in Latin America. If the company can squeeze out just 6% annual growth in net operating profit after taxes, the stock is worth $850 a share, New Constructs says.

Remember, never rush out and buy stocks without doing your own due diligence. If the market gets uglier, there’s no guarantee that these stocks couldn’t suffer and decline in value, too. Also, remember that for most investors, trying to choose individual stocks is a losing battle. Most individual investors are best off buying a diversified basket of low-cost index funds and holding on for a long period of time. But for investors looking to speculate, these are stocks New Constructs’ research says are worth a bet.